Fibonacci retracement when trading currencies is a strong way to get a lot a hold of your investment strategy. Understanding the Fibonacci number sequence and knowing how to apply the knowledge can take your trading into the next level. The Fibonacci numbers are a sequence that are meaningless on their own, but analyzing the quotients of adjoining terms and studying the square roots of these totals reveals a pattern which is used most of the times in the financial markets. Any seasoned investor knows how important this numbers are to his success.

Traders use the Fibonacci tool in analyzing charts most of the times as it aids them identify different percentages using retracement graphs and trading charts. The Fibonacci tool helps investors to plot the highs and lows of an instrument and thus it becomes easy to predict when the movement is liable to come to an end.

When we see a rising price action, Fibonacci makes us know that it would eventually fall into a series of waves known as corrections. The Fibonacci numbers are matched by the waves frequently. A financial instrument that sees a correction at the 50% level will most definitely experience another one at the 62% mark. Armed with this type of tool, investors are able to sell before the financial instrument touches the 62% mark. Let us examine the chart on image below closely.

Trading the Fibonacci

Fibonacci Retracement

The Fibonacci retracement is a trade Fibonacci trade pattern that is employed by investors to define areas of support (price stops going lower) and resistance (price stops going higher). The Fibonacci retracement is an eminent retracement of a financial instrument’s original price movement. It takes hold of horizontal lines to show points of support and resistance. To understand the Fibonacci level, it is important to know that the levels are created by drawing a line between two extreme points and splitting the vertical distance by the all important Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%. Let’s take an example from image:

Entry Strategy: Enter a sell or buy when price bounces off the 2nd candle that comes off the candlestick prior to touching the resistance level or sell off the 2nd candle that comes off the candlestick prior to touching the support level.

Exit Strategy: sell or buy signal when candle stick bounces off support level or resistance levels.

Conclusion

Fibonacci patterns are best used alongside other patterns and indicators. Fibonacci allows investors get a general view to the overall move. A good combination of indicators and chart patterns with the numerous Fibonacci technical tools available can increase the probability of successful trade. Generally, when so many indicators point to the same direction, then you can be sure of where price is heading to.